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Hess will face Paul Singer as it moves forward with plans to become an exploration and production company - Photo credit: The Consumerist

Hess has become the latest large-cap oil company to announce plans to shed its refining and downstream business to focus on high-margin exploration and production. At the same time, Hess will face the activism of billionaire Paul Singer of hedge fund Elliott Management , who told the company he’s looking to load up on potentially more than $800 million in shares and will seek board representation. Shares in the company surged on Monday.

With the potential of an activist investor to battle management and an intention to focus on its upstream business, Hess, as a stock, is looking particularly interesting. The intention to sell its 19 terminals, which have a storage capacity of approximately 28 million barrels, and the closing of its Port Reading refinery in New Jersey, Hess is moving ahead with its plan to become purely an exploration and production company, much like ConocoPhillips and Marathon Oil.

To sweeten the deal, Hess has thrown in its 10 million barrel St. Lucia terminal, which has been on the selling block since last March; the company is looking to free up about $1 billion in working capital from the sale, which would add to recent divestiture announcements worth $2.4 billion. The company justified closing the Port Reading refinery, which was shut down during Hurricane Sandy, noting it had incurred losses in two of the past three years; Hess’ management explained they can now get refined products for its marketing business from third parties for cheaper.

In one of the press releases, Hess’ management noted their “leadership position in the Bakken oil shale of North Dakota,” one of the areas where the company will double down on. Interestingly, Hess is selling its assets in the highly profitable Eagle Ford shale in Texas. Goldman Sachs will be leading the sale.

Elliott Management’s potential presence adds an interesting twist to Hess’ new path. With the company engaged in a transition, Paul Singer’s hedge fund is looking to buy up about 3.4% of Hess, which carries a $21.1 billion market capitalization. Hess chief executive John Hess said that “Elliott had not contacted us about their intentions, nor have we had any discussions with them.”

In the release, Hess highlighted the company’s new trajectory, focusing on their stock performance over the past few months:

We are pleased that the market has been recognizing the success of our strategic transformation as reflected by the fact that Hess shares have significantly outperformed our peers over the past six months. Since July 24, 2012, the last day of trading before we announced our updated strategy, Hess shares have increased approximately 34% versus 13% for our peer index. We are confident that continued execution of our strategy is delivering and will deliver superior and sustainable value to all Hess shareholders.

A lawyer for Elliott informed the company the hedge fund is considering nominating candidates for Hess’ board of directors in the upcoming annual meeting, meaning Singer’s fund is looking to shake things up. Hess, who has been at the company for more than 35 years, appears ready to defend his management team and the strategy they are pursuing.

As a stock, Hess has done okay over the past 12 months, returning about as much as Exxon Mobil but underperforming other integrated names like Chevron. On Monday, though, the stock soared, gaining more than 6% in early trading. By 12:34 PM, Hess had given up some of those gains, and was trading up 5.2% to $61.96.

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